When $7 million of Eau Claire, Wis.-based Sacred Heart Hospital's revenue was threatened by the opening of a competing outpatient facility, its leaders devised a plan to recoup $5 million of the lost revenue by reducing expenses — the remainder could be made up through increased volumes. Guided by the work of Michael Rindler and his book "Strategic Cost Reduction," leadership launched the Strategic Performance Improvement Initiative. As part of this initiative, unit directors were assigned to performance improvement groups and were asked to examine every expense, identifying key areas for reducing costs.
"We created diverse groups of directors that traditionally wouldn't work together," says Faye Deich, COO of 344-bed Sacred Heart Hospital and senior vice president, division operations for HSHS Western Wisconsin Division. "This brought a new set of eyes asking questions such as 'why is that this way?' or 'why do you spend so much on that?'"
All departments were asked to cut the same percent from their budgets, which was then translated to a specific dollar amount to better guide the performance groups. "Cuts were made evenly across departments and everyone had to contribute. No department was given a pass," says Ms. Deich.
The groups successfully identified $5.7 million in savings, with $3.3 million coming from non-labor expenses. After just six months of its SPI program, the hospital achieved a savings of $5.1 million, with $2.7 million of that not related to labor. How was Sacred Heart able to achieve such significant savings in such a short period of time? Namely through evaluating and renegotiating vendor contracts, reports Ms. Deich.
"How we do business has really shifted," she says. "Leaders more closely scrutinize costs and what vendors offer, and we've really tried to create a culture where paying attention to costs is a regular part of life."
Here are 10 of the areas Sacred Heart was able to create a significant reduction in its costs.
1. Knee/hip implants — $500,000 saved. Sacred Heart's surgical department successfully negotiated the cost of its knee and hip implants down $500,000 without switching vendors. "Part of what we learned was that many of our leaders came from the clinical side and didn't have training in the art of contract negotiation," says Ms. Deich. "They learned to be much firmer on what they'd accept for pricing and communicated their position with surgeons. You don't want to walk away from a vendor if you're surgeons won't back you up."
2. Blood — $226,000 saved. "We thought we were possibly paying too much for our blood services, but the contract was due, so we told the vendor we'd sign for one year and then do an RFP the following year," says Deich. "The next year, the vendor dropped the price dramatically."
3. Thrombin waste — $120,000 saved. Sacred Heart realized its surgical department was wasting a considerable amount of Thrombin, a very expensive coagulation medication used in neurosurgical procedures. "Neurosurgeons had nurses open a certain number of vials and put it in a sterile basin. If it wasn't used, it was tossed," says Ms. Deich. "We talked to the neurosurgeons about changing this process. If you make sure your physicians understand the cost of what they're using, they are typically very willing and supportive of the change."
4. Syringe preservative change — $60,000. "Our pharmacy took a look at the costs associated with PCA [Patient-Controlled Analgesia] pumps given to patients after surgery. We learned the syringes we were using were designed for a very long shelf life of 90-100 days," says Ms. Deich. "We evaluated how frequently the turnover of our PCA syringes were and realized we were using most within 10 days, so we could switch to a different preservative with a shorter shelf life and realize significant savings."
5. Online journal subscriptions —$46,000. Sacred Heart switched the subscriptions to medical and other educational journals it covers for staff from print to online subscriptions, which created nearly $50,000 in savings.
6. Office supplies — $42,000. Before cost savings measures were put into place, employees could order any items he or she wanted from the office supply vendor. In order to address costs in this area, the hospital began to restrict supply requests to an approved, standardized list of products and required a supervisor to approve any request beyond the approved list. "We had no idea how many little things were being ordered and how quickly they added up," says Ms. Deich.
7. Contrast standardization — $36,000. Sacred Heart worked to standardize the contrast medication given to patients undergoing radiological imaging. "We worked with a GPO to get the medication and a lower rate and worked with radiologists to convert more patients, when medically appropriate, to the same contrast medication," says Ms. Deich. "That allowed us to leverage our volume for lower rates."
8. Soft drinks — $24,000. "We had stocked our physicians' lounge with bottles of soda, and they would grab a bottle," says Ms. Deich. "We switched to fountain drinks, and saved $24,000 in one year." The switch reduced waste and brought about significant savings.
9. Electronic pay notification — $16,800. Sacred Heart stopped printing and mailing pay notifications to employees and instead provided electronic pay notifications via e-mail to employees enrolled in direct deposit. This saved the hospital $16,800 on printing and postage costs.
10. Trash liners — $15,000. By simply switching to a new vendor, the hospital saved $15,000 in one year on trash can liners alone. "While $15,000 isn't a lot, the little things add up," says Ms. Deich. "The bigger message is you have to be willing to look at every detail to find every opportunity for savings."
Learn more about Sacred Heart Hospital.
"We created diverse groups of directors that traditionally wouldn't work together," says Faye Deich, COO of 344-bed Sacred Heart Hospital and senior vice president, division operations for HSHS Western Wisconsin Division. "This brought a new set of eyes asking questions such as 'why is that this way?' or 'why do you spend so much on that?'"
All departments were asked to cut the same percent from their budgets, which was then translated to a specific dollar amount to better guide the performance groups. "Cuts were made evenly across departments and everyone had to contribute. No department was given a pass," says Ms. Deich.
The groups successfully identified $5.7 million in savings, with $3.3 million coming from non-labor expenses. After just six months of its SPI program, the hospital achieved a savings of $5.1 million, with $2.7 million of that not related to labor. How was Sacred Heart able to achieve such significant savings in such a short period of time? Namely through evaluating and renegotiating vendor contracts, reports Ms. Deich.
"How we do business has really shifted," she says. "Leaders more closely scrutinize costs and what vendors offer, and we've really tried to create a culture where paying attention to costs is a regular part of life."
Here are 10 of the areas Sacred Heart was able to create a significant reduction in its costs.
1. Knee/hip implants — $500,000 saved. Sacred Heart's surgical department successfully negotiated the cost of its knee and hip implants down $500,000 without switching vendors. "Part of what we learned was that many of our leaders came from the clinical side and didn't have training in the art of contract negotiation," says Ms. Deich. "They learned to be much firmer on what they'd accept for pricing and communicated their position with surgeons. You don't want to walk away from a vendor if you're surgeons won't back you up."
2. Blood — $226,000 saved. "We thought we were possibly paying too much for our blood services, but the contract was due, so we told the vendor we'd sign for one year and then do an RFP the following year," says Deich. "The next year, the vendor dropped the price dramatically."
3. Thrombin waste — $120,000 saved. Sacred Heart realized its surgical department was wasting a considerable amount of Thrombin, a very expensive coagulation medication used in neurosurgical procedures. "Neurosurgeons had nurses open a certain number of vials and put it in a sterile basin. If it wasn't used, it was tossed," says Ms. Deich. "We talked to the neurosurgeons about changing this process. If you make sure your physicians understand the cost of what they're using, they are typically very willing and supportive of the change."
4. Syringe preservative change — $60,000. "Our pharmacy took a look at the costs associated with PCA [Patient-Controlled Analgesia] pumps given to patients after surgery. We learned the syringes we were using were designed for a very long shelf life of 90-100 days," says Ms. Deich. "We evaluated how frequently the turnover of our PCA syringes were and realized we were using most within 10 days, so we could switch to a different preservative with a shorter shelf life and realize significant savings."
5. Online journal subscriptions —$46,000. Sacred Heart switched the subscriptions to medical and other educational journals it covers for staff from print to online subscriptions, which created nearly $50,000 in savings.
6. Office supplies — $42,000. Before cost savings measures were put into place, employees could order any items he or she wanted from the office supply vendor. In order to address costs in this area, the hospital began to restrict supply requests to an approved, standardized list of products and required a supervisor to approve any request beyond the approved list. "We had no idea how many little things were being ordered and how quickly they added up," says Ms. Deich.
7. Contrast standardization — $36,000. Sacred Heart worked to standardize the contrast medication given to patients undergoing radiological imaging. "We worked with a GPO to get the medication and a lower rate and worked with radiologists to convert more patients, when medically appropriate, to the same contrast medication," says Ms. Deich. "That allowed us to leverage our volume for lower rates."
8. Soft drinks — $24,000. "We had stocked our physicians' lounge with bottles of soda, and they would grab a bottle," says Ms. Deich. "We switched to fountain drinks, and saved $24,000 in one year." The switch reduced waste and brought about significant savings.
9. Electronic pay notification — $16,800. Sacred Heart stopped printing and mailing pay notifications to employees and instead provided electronic pay notifications via e-mail to employees enrolled in direct deposit. This saved the hospital $16,800 on printing and postage costs.
10. Trash liners — $15,000. By simply switching to a new vendor, the hospital saved $15,000 in one year on trash can liners alone. "While $15,000 isn't a lot, the little things add up," says Ms. Deich. "The bigger message is you have to be willing to look at every detail to find every opportunity for savings."
Learn more about Sacred Heart Hospital.